Ms. Waters (for
herself, Mrs. Capito,
Mr. Frank of Massachusetts, and
Mr. Al Green of Texas) introduced the
following bill; which was referred to the
Committee on Financial
Services

May 6, 2010

Additional sponsors: Mr.
Lynch and Mr.
Sherman

May 6, 2010

Reported with an amendment, committed to the Committee of
the Whole House on the State of the Union, and ordered to be
printed

Strike out all after the enacting clause and insert
the part printed in italic

For text of introduced bill, see copy of bill as
introduced on April 20, 2010

A BILL

To improve the financial safety and
soundness of the FHA mortgage insurance program.

1.

Short title

This Act may be cited as the
FHA Reform Act of
2010.

2.

Mortgage insurance
premiums

Subparagraph (B) of
section 203(c)(2) of the National Housing Act (12 U.S.C. 1709(c)(2)(B)) is
amended—

(1)

in the matter preceding
clause (i)—

(A)

by striking
shall and inserting may; and

(B)

by striking 0.50
percent and inserting 1.5 percent; and

(2)

in clause (ii), by
striking shall be in an amount not exceeding 0.55 percent and
inserting may be in an amount not exceeding 1.55 percent.

3.

Indemnification by
mortgagees

Section 202 of the
National Housing Act (12 U.S.C. 1708) is amended by adding at the end the
following new subsection:

(i)

Indemnification by
mortgagees

(1)

In
general

If the Secretary
determines that a mortgage executed by a mortgagee approved by the Secretary
under the direct endorsement program or insured by a mortgagee pursuant to the
delegation of authority under section 256 was not originated or underwritten in
accordance with the requirements established by the Secretary, and the
Secretary pays an insurance claim with respect to the mortgage within a
reasonable period specified by the Secretary, the Secretary may require the
mortgagee approved by the Secretary under the direct endorsement program or the
mortgagee delegated authority under section 256 to indemnify the Secretary for
the loss.

(2)

Fraud or
misrepresentation

If fraud or misrepresentation was involved in
connection with the origination or underwriting, the Secretary may require the
mortgagee approved by the Secretary under the direct endorsement program or the
mortgagee delegated authority under section 256 to indemnify the Secretary for
the loss regardless of when an insurance claim is paid.

(3)

Requirements and
procedures

The Secretary shall issue regulations establishing
appropriate requirements and procedures governing the indemnification of the
Secretary by the
mortgagee.

.

4.

Delegation of insuring
authority

Section 256 of the
National Housing Act (12 U.S.C. 1715z–21) is amended—

(1)

by striking subsection
(c);

(2)

in subsection (e), by
striking , including and all that follows through by the
mortgagee; and

(3)

by redesignating
subsections (d) and (e) as subsections (c) and (d), respectively.

Section 533 of the National Housing Act (12
U.S.C. 1735f–11) is amended—

(1)

in the first sentence of
subsection (b), by inserting or areas or on a nationwide basis
after area each place such term appears; and

(2)

in subsection (c), by
striking (c) and all that follows through The Secretary
in the first sentence of paragraph (2) and inserting the
following:

(c)

Termination of
mortgagee origination and underwriting approval

(1)

Termination
authority

If the Secretary
determines, under the comparison provided in subsection (b), that a mortgagee
has a rate of early defaults and claims that is excessive, the Secretary may
terminate the approval of the mortgagee to originate or underwrite single
family mortgages for any area, or areas, or on a nationwide basis,
notwithstanding section 202(c) of this Act.

Subsection (b) of
section 4 of the Department of Housing and Urban Development Act (42 U.S.C.
3533(b)) is amended—

(1)

by inserting
(1) after (b); and

(2)

by adding at the end the
following new paragraph:

(2)

There shall be in the Department, within
the Federal Housing Administration, a Deputy Assistant Secretary for Risk
Management and Regulatory Affairs, who shall be appointed by the Secretary and
shall be responsible to the Federal Housing Commissioner for all matters
relating to managing and mitigating risk to the mortgage insurance funds of the
Department and ensuring the performance of mortgages insured by the
Department.

.

(b)

Termination

Upon the appointment and confirmation of
the initial Deputy Assistant Secretary for Risk Management and Regulatory
Affairs pursuant to section 4(b)(2) of the Department of Housing and Urban
Development Act, as amended by subsection (a) of this section, the position of
chief risk officer within the Federal Housing Administration, filled by
appointment by the Federal Housing Commissioner, is abolished.

7.

Use of outside credit
risk analysis sources

Section
202 of the National Housing Act (12 U.S.C. 1708), as amended by the preceding
provisions of this Act, is further amended by adding at the end the following
new subsection:

(j)

Use of outside credit
risk analysis sources

The
Secretary may obtain the services of, and enter into contracts with, private
and other entities outside of the Department in—

(1)

analyzing credit risk
models and practices employed by the Department in connection with such
mortgages;

(2)

evaluating underwriting
standards applicable to such mortgages insured by the Department; and

(3)

analyzing the performance
of lenders in complying with, and the Department in enforcing, such
underwriting
standards.

.

8.

Review of mortgagee
performance

Section 533 of the
National Housing Act (12 U.S.C. 1735f–11) is amended—

(1)

in subsection (a), by
inserting after the period at the end the following: For purposes of
this subsection, the term early default means a default that
occurs within 24 months after a mortgage is originated or such alternative
appropriate period as the Secretary shall establish.;

(2)

in subsection (b), by
inserting after the period at the end of the first sentence the following:
The Secretary shall also identify which mortgagees have had a
significant or rapid increase, as determined by the Secretary, in the number or
percentage of early defaults and claims on such mortgages, with respect to all
mortgages originated by the mortgagee or mortgages on housing located in any
particular geographic area or areas.; and

(3)

by adding at the end the
following new subsections:

(d)

Sufficient
resources

There is authorized
to be appropriated to the Secretary for each of fiscal years 2010 through 2014
the amount necessary to provide additional full-time equivalent positions for
the Department, or for entering into such contracts as are necessary, to
conduct reviews in accordance with the requirements of this section and to
carry out other responsibilities relating to ensuring the safety and soundness
of the Mutual Mortgage Insurance Fund.

(e)

Reporting to
Congress

Not later than 90
days after the date of enactment of the FHA
Reform Act of 2010 and not less often than annually thereafter,
the Secretary shall make available to the Committee on Financial Services of
the House of Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate any information and conclusions pursuant to the reviews
required under subsection (a). Such report shall not include detailed
information on the performance of individual
mortgages.

.

9.

Use of nationwide
mortgage licensing system and registry

(a)

Use by mortgagees,
officers, and owners; use for insured mortgages

(1)

Mortgagees, officers,
and owners

Section 202 of the
National Housing Act (12 U.S.C. 1708), as amended by the preceding provisions
of this Act, is further amended by adding at the end the following new
subsections:

(k)

Use of nationwide
mortgage licensing system and registry for mortgagees, officers, and
owners

The Secretary may require, as a condition for approval of
a mortgagee by the Secretary to originate or underwrite mortgages on single
family that are insured by the Secretary, that the mortgagee—

(1)

obtain and maintain a
unique company identifier assigned by the Nationwide Mortgage Licensing System
and Registry, as established by the Conference of State Bank Supervisors and
the American Association of Residential Mortgage Regulators; and

(2)

obtain and maintain, as relates to any and
all officers or owners of the mortgagee who are subject to the requirements of
the S.A.F.E. Mortgage Licensing Act of 2008, or are otherwise required to
register with the Nationwide Mortgage Licensing System and Registry, the unique
identifier assigned by the Nationwide Mortgage Licensing System and Registry,
as established by the Conference of State Bank Supervisors and the American
Association of Residential Mortgage
Regulators.

.

(2)

Insured
mortgages

Section 203 of the National Housing Act (12 U.S.C.
1709) is amended by adding at the end the following new subsection:

(y)

Use of nationwide
mortgage licensing system and registry for insured loans

The Secretary may require each mortgage
insured under this section to include the unique identifier (as such term is
defined in section 1503 of the S.A.F.E. Mortgage Licensing act of 2008 (12
U.S.C. 5102)) and any unique company identifier assigned by the Nationwide
Mortgage Licensing System and Registry, as established by the Conference of
State Bank Supervisors and the American Association of Residential Mortgage
Regulators.

.

(b)

Coordination with State
regulatory agencies

Section 202 of the National Housing Act (12
U.S.C. 1708), as amended by the preceding provisions of this Act, is further
amended by adding at the end the following new subsection:

(l)

Information sharing
with State regulatory agencies

(1)

Joint protocol on
information sharing

The
Secretary shall, through consultation with State regulatory agencies, pursue
protocols for information sharing, including the appropriate treatment of
confidential or otherwise restricted information, regarding either actions
described in subsection (c)(3) of this section or disciplinary or enforcement
actions by a State regulatory agency or agencies against a mortgagee (as such
term is defined in subsection (c)(7)).

(2)

Coordination

To
the greatest extent possible, the Secretary and appropriate State regulatory
agencies shall coordinate disciplinary and enforcement actions involving
mortgagees (as such term is defined in subsection
(c)(7)).

.

10.

Reporting of mortgagee
actions taken against other mortgagees

Section 202 of the National Housing Act (12
U.S.C. 1708(e)), as amended by the preceding provisions of this Act, is further
amended by adding at the end the following new subsection:

(m)

Notification of
mortgagee actions

The
Secretary shall require each mortgagee, as a condition for approval by the
Secretary to originate or underwrite mortgages on single family or multifamily
housing that are insured by the Secretary, if such mortgagee engages in the
purchase of mortgages insured by the Secretary and originated by other
mortgagees or in the purchase of the servicing rights to such mortgages, and
such mortgagee at any time takes action to terminate or discontinue such
purchases from another mortgagee based on any determination, evidence, or
report of fraud or material misrepresentation in connection with the
origination of such mortgages, the mortgagee shall, not later than 15 days
after taking such action, shall notify the Secretary of the action taken and
the reasons for such
action.

Subsection (a) of section 202 of the
National Housing Act (12 U.S.C. 1708(a)) is amended—

(1)

in the second sentence of
paragraph (4), by inserting before the period at the end the following:
, any changes to the current or projected safety and soundness of the
Fund since the most recent report under this paragraph or paragraph (5), and
any risks to the Fund; and

(2)

in paragraph (5)—

(A)

in subparagraph (D), by
striking and at the end;

(B)

in subparagraph (E), by
striking the period at the end and inserting ; and;

(C)

by adding at the end the
following:

(F)

any other factors that are likely to have
an impact on the financial status of the Fund or cause any material changes to
the current or projected safety and soundness of the Fund since the most recent
report under paragraph (4).

The
Secretary may include in the report under this paragraph any recommendations
not made in the most recent report under paragraph (4) that may be needed to
ensure that the Fund remains financially
sound.

.

12.

Review of downpayment
requirements

Section 205 of
the National Housing Act (12 U.S.C. 1711) is amended by adding at the end the
following new subsection:

(g)

Review of downpayment
requirements

If, at any time
when the capital ratio (as such term is defined in subsection (f)) of the
Mutual Mortgage Insurance Fund does not comply with the requirement under
subsection (f)(1), the Secretary establishes a cash investment requirement, for
all mortgages or mortgagors or with respect to any group of mortgages or
mortgagors, that exceeds the minimum percentage or amount required under
section 203(b)(9), thereafter upon the capital ratio first complying with the
requirement under subsection (f)(1) the Secretary shall review such cash
investment requirement and, if the Secretary determines that such percentage or
amount may be reduced while maintaining such compliance, the Secretary shall
subsequently reduce such requirement by such percentage or amount as the
Secretary considers
appropriate.

Paragraph (2) of
section 540(b) of the National Housing Act (12 U.S.C. 1712 U.S.C.
1735f–18(b)(2)) is amended by adding at the end the following new
subparagraph:

(C)

For each entity that services insured
mortgages, data on the performance of mortgages originated during each calendar
quarter occurring during the applicable collection period, disaggregated by the
direct endorsement mortgagee from whom such entity acquired such
servicing.

.

(b)

Applicability

Information
described in subparagraph (C) of section 540(b)(2) of the National Housing Act,
as added by subsection (a) of this section, shall first be made available under
such section 540 for the applicable collection period (as such term is defined
in such section) relating to the first calendar quarter ending after the
expiration of the 12-month period that begins on the date of the enactment of
this Act.

14.

Third party servicer
outreach

(a)

Authority

The Secretary of Housing and Urban
Development may, to the extent any amounts for fiscal year 2010 or 2011 are
made available in advance in appropriation Acts for reimbursements under this
section, provide reimbursement to servicers of covered mortgages (as such term
is defined in subsection (e)) for costs of obtaining the services of
independent third parties meeting the requirements under subsection (b) of this
section to make in-person contact with mortgagors under covered mortgages whose
payments under such mortgages are 60 or more days past due, solely for the
purposes of providing information to such mortgagors regarding—

(1)

available counseling by
housing counseling agencies approved by the Secretary ; and

An independent third party meets the requirements
of this subsection if the third party—

(1)

is an entity, including a
housing counseling agency approved by the Secretary, that meets standards,
qualifications, and requirements (including regarding foreclosure prevention
training, quality monitoring, safeguarding of non-public information)
established by the Secretary for purposes of this section for in-person contact
about available mortgage loan modification, refinance, and assistance programs;
and

(2)

does not charge any fees
or require other payments, directly or indirectly, from any mortgagor for
making in-person contact and providing information and documents under this
section.

(c)

Treatment of personal,
non-public, and confidential information

An independent third party whose services
are obtained using amounts made available for use under this section and the
mortgage servicer obtaining such services shall not use, disclose, or
distribute any personal, non-public, or confidential information about a
mortgagor obtained during an in-person contact with the mortgagor, except for
purposes of engaging in the process of modification or refinance of the covered
mortgage.

(d)

Date of contact and
disclosures

Each independent third party whose services are
obtained by a mortgage servicer using amounts made available for use under this
section shall—

(1)

initiate in-person contact with a mortgagor
not later than 10 days after the date upon which payments under the covered
mortgage of the mortgagor become 60 days past due; and

(2)

upon making in-person
contact with a mortgagor, provide the mortgagor with a written document that
discloses—

(A)

the name of, and contact
information for, the independent third party and the mortgage servicer;

(B)

that the independent
third party has contracted with the mortgage servicer to provide the in-person
contact at no charge to the mortgagor;

(C)

that the independent
third party is an agent of the mortgage servicer;

(D)

that the in-person contact with the
mortgagor consists of providing information about available counseling by a
housing counseling agency approved by the Secretary and available mortgage loan
modification, refinance, and assistance programs;

(E)

that the independent third party and the
mortgage servicer are prohibited from the use, disclosure, or distribution of
personal, non-public, and confidential information about the mortgagor,
obtained during the in-person contact, except for purposes of engaging in the
process of modification or refinance of the covered mortgage;

(F)

any other information
that the Secretary determines should be disclosed.

(e)

Definition of covered
mortgage

For purposes of this
section, the term covered mortgage means a mortgage on a 1- to
4-family residence insured under the provisions of subsection (b) or (k) of
section 203, section 234(c), or 251 of the National Housing Act (12 U.S.C.
1709, 1715y, 1715z–16).

15.

GAO reports on FHA and
Ginnie Mae

Not later than the
expiration of the 12-month period beginning on the date of the enactment of
this Act, the Comptroller General of the United States shall submit to the
Congress the following reports:

(1)

FHA
report

A report on the single family mortgage insurance programs
of the Secretary of Housing and Urban Development and the Mutual Mortgage
Insurance Fund established under section 202(a) of the National Housing Act (12
U.S.C. 1708(a)) that—

(A)

analyzes such Fund, the economic net worth,
capital ratio, and unamortized insurance-in-force (as such terms are defined in
section 205(f)(4) of such Act (12 U.S.C. 1711(f)(4))) of such Fund, the risks
to the Fund, how the capital ratio of the Fund affects the mortgage insurance
programs under the Fund and the broader housing market, the extent to which the
housing markets are more dependent on mortgage insurance provided through the
Fund since the financial crisis began in 2008, and the exposure of the
taxpayers for obligations of the Fund;

(B)

analyzes the methodology
of the capital ratio for the Fund under section 205(f) of such Act and examines
other alternative methodologies with respect to which methodology is most
appropriate to meet the operational goals of the Fund under section
202(a)(7);

(C)

analyzes the effects of the increases in
the limits on the maximum principal obligation of mortgages made by the FHA
Modernization Act of 2008 (title I of division B of Public Law 110–289),
section 202 of the Economic Stimulus Act of 2008 (Public Law 110–185; 122 Stat.
620), section 1202 of division A of the American Recovery and Reinvestment Act
of 2009 (Public Law 111–5; 123 Stat. 225), and section 166 of the Continuing
Appropriations Resolution, 2010 (as added by section 104 of division B of
Public Law 111–88; 123 Stat. 29723) on—

(i)

the risks to and safety
and soundness of the Fund;

(ii)

the impact on the
affordability and availability of mortgage credit for borrowers for loans
authorized under such higher loan limits;

(iii)

the private market for
residential mortgage loans that are not insured by the Secretary of Housing and
Urban Development; and

(iv)

the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation; and

(D)

analyzes the impact on affordability to FHA
borrowers, and the impact to the Fund, of seller concessions or contributions
to a borrower purchasing a residence using a mortgage that is insured by the
Secretary.

(2)

Ginnie
Mae

A report on the Government National Mortgage Association that
identifies—

(A)

the volume and share of the residential
mortgage market that consists of mortgages that back securities for which the
payment for principal and interest is guaranteed by such Association and how
the Association has been affected by the economic recession, credit crisis, and
downturn in the housing markets occurring during 2008, 2009, and 2010;

(B)

the capacity of the
Association to manage the volume of business it conducts and securities it
guarantees, particularly with regard to the recent dramatic increase in such
volume, including the ability of the Association to conduct appropriate
oversight of contractors and issuers of securities for which the payment of
principal and interest is guaranteed by the Association and to determine
whether the characteristics of various mortgage products constitute appropriate
collateral for the federally guaranteed securities for which payment of
principal and interest is guaranteed by such Association;

(C)

the impacts, if any,
resulting from such increased volume of business conducted by the Association
and securities it guarantees and the challenges such increased volume poses to
the internal controls of the Association; and

(D)

the existing capital net worth requirements
for aggregators of mortgages that issue securities that are based on or backed
by such mortgages and payment of principal and interest on which is guaranteed
by such Association and recommends an appropriate required level of net worth
for such aggregators and issuers to protect the financial interests of the
Federal Government and the taxpayers.

May 6, 2010

Reported with an amendment, committed to the Committee of
the Whole House on the State of the Union, and ordered to be
printed